Yoga Pants and High Tops: Trading Nike and Lululemon

Will a rising Apple (NASDAQ: AAPL) lift all boats? While the impact of Apple’s blow-out earnings announcement on the severely oversold Nasdaq is already being anticipated by financial pundits, short-term traders and active investors might want to consider the broader impact of Apple’s outperformance on other popular growth stocks that have recently come in for significant profit-taking.

Nike (NYSE: NKE) and Lululemon Athletica (NASDAQ: LULU) both fit into this category. Nike has the longer pedigree, by far. But both companies have come to represent what a sizable number of active people – including athletes in pro sports – think about and wear when they think about and wear everything from Nike’s NFL Dunk high top shoes to Lululemon’s yoga pants and zip-up hoodies.

Shares of Nike Inc. have now closed lower for three out of the last four trading days, pulling back to test new, two-week lows at the end of Tuesday’s session. The selling has taken the stock just inside of technically oversold territory – not unlike similarly sharp pullbacks in Nike during the first half of April and the second half of March. Each previous instance led to significant short-term gains, with shares of NKE rallying for seven out of the next ten days after the stock’s March correction, and Nike closing higher for six days in a row following a single-day dip into oversold territory earlier in April.

Lululemon, which topped in April, now looks to be breaking down from a short-term consolidation that developed shortly after those new, 52-week highs were reached in April. Pulling back by nearly 5% on Tuesday, LULU has closed lower for four out of the last six days to finish technically oversold for the first time since late in March. Then, a five-day sell-off that took LULU into oversold territory for two consecutive sessions led to a rally during which the stock closed higher for four out of five days, gaining more than 5%.

Heading into trading Wednesday morning, Lululemon has the larger edge of the two, and is set to open with a positive, short-term edge of more than one and a quarter percent. Both LULU and NKE share neutral ratings of 6 out of 10.

Learn quantified trading strategies to trade edges in the stock market that only the professionals are paying attention to. Click here for more information.

David Penn is Editor in Chief of TradingMarkets.com